United Parcel Service Misses

United Parcel Service (UPS) reported 3rd Quarter September 2018 earnings of $1.82 per share on revenue of $17.4 billion. The consensus earnings estimate was $1.82 per share on revenue of $17.4 billion. The Earnings Whisper number was $1.83 per share. Revenue grew 9.2% on a year-over-year basis.

The company said it continues to expect 2018 earnings of $7.03 to $7.37 per share. The current consensus earnings estimate is $7.25 per share for the year ending December 31, 2018.

United Parcel Service Inc (UPS) is a package delivery organization less-than-truckload industry & provider of supply chain management solutions. It operates in three segments; U.S. Domestic Package, International Package and Supply Chain & Freight.

ATLANTA, Oct. 24, 2018 (GLOBE NEWSWIRE) -- UPS (NYSE:UPS) today announced third-quarter diluted earnings per share of $1.73, up more than 20%, and adjusted, diluted earnings per share of $1.82, up 26%.

Third-quarter adjusted results exclude a pre-tax charge of $97 million, or $0.09 per share after tax, due to transformation-related costs. These projects are a part of the company’s transformation initiatives that will create efficiencies across the enterprise. Transformation will also produce higher-quality revenue growth.

Consolidated Results

3Q 2018

Adjusted3Q 2018

3Q 2017

Revenue

$17,444 M

$16,173 M

Net Income

$1,508 M

$1,581 M

$1,259 M

Diluted Earnings Per Share

$1.73

$1.82

$1.44

EPS Growth

20.1

%

26.4

%

“Our business strategies position UPS to improve operating leverage and many of our actions are already contributing to performance gains,” said UPS Chairman and CEO David Abney. “We generated another quarter of industry-leading margins and strong free cash flow and we are confident in the outlook for the business.”

Average revenue yield increased 4.0%, with base-pricing gains in all product categories.

Year-to-date cash from operations expanded to $9.4 billion.

Free cash flow increased to $4.9 billion through the first nine months of the year.

Year-to-date dividends per share increased by 10%, producing an annual dividend yield in excess of 3%.

The company repurchased 6.6 million shares year-to-date for approximately $750 million.

Capital investments and associated efficiencies were as expected in the quarter with year-to-date expenditures at $4.5 billion.

Third quarter results benefited from several discrete items, including tax that helped to offset unplanned International headwinds from currency and fuel.

U.S. Domestic Segment

The U.S. Domestic segment experienced strong revenue growth of 8.1% to $10.4 billion, driven by high demand for the company’s solutions and robust yield expansion compared to 3Q 2017. The segment also generated sequential yield improvements driven in part by a more disciplined approach to capture high-quality growth opportunities.

3Q 2018

Adjusted3Q 2018

3Q 2017

Revenue

$10,437 M

$9,651 M

Operating profit

$949 M

$988 M

$1,011 M

For the U.S. Domestic segment in 3Q 2018:

Revenue, volume and revenue per piece increased across all products in the quarter.

Daily shipments increased 3.3%, led by Next Day Air and Ground products.

Ground revenue per piece increased by 5.1% over the prior year.

Operating profit was reduced by planned increases in pension expense and the cost of ongoing network improvements.

International segment revenue increased in all regions compared to the same period last year, on both a reported and currency-neutral basis. Export volume also increased across all regions and exports grew nearly 3% on top of 19% growth last year. Year-over-year comparisons are affected by the strong 3Q 2017 growth UPS experienced in Europe.

“Supply Chain and Freight performance was outstanding this quarter, as the unit delivered double-digit growth in both revenue and adjusted operating profit,” Abney said. “UPS will continue to leverage our vast forwarding, customs, and supply-chain solutions to help customers expand their existing businesses and reach new markets.”

3Q 2018

Adjusted3Q 2018

3Q 2017

Revenue

$3,529 M

$3,146 M

Operating profit

$242 M

$260 M

$195 M

For the Supply Chain and Freight segment in 3Q 2018:

Revenue increased more than 12% to $3.5 billion, as the business units benefited from strategies focused on small and medium-sized customers.

The Forwarding business led all units with 17% revenue growth, as revenue management initiatives and high-value solutions generated yield improvement.

The company provides earnings per share guidance on an adjusted (non-GAAP) basis because it is not possible to predict or provide a reconciliation reflecting the impact of future required pension mark-to-market adjustments, which would be included in reported (GAAP) results. The impact of such adjustments could be material.

“Improvements in revenue quality and our new, highly-automated capacity gives us confidence in a successful peak season for our customers and shareowners,” said Richard Peretz, UPS’s chief financial officer.

UPS expects 2018 adjusted, diluted earnings per share in a range of $7.03 to $7.37.

The company is raising free cash flow guidance to over $5.0 billion in 2018.

As previously guided, UPS expects 4Q18 adjusted EPS to increase about 15 percent, despite anticipated currency headwinds in emerging markets and one less operating day during peak season.

The effective tax rate should be in a range of 23% to 24% for the fourth quarter.

* Information on non-GAAP financial measures is attached to this press release.

Conference Call Information

UPS CEO David Abney and CFO Richard Peretz will discuss third-quarter results with investors and analysts during a conference call at 8:30 a.m. ET, October 24, 2018. That call is open to others through a live Webcast. To access the call, go to www.investors.ups.com and click on “Earnings Webcast.”

About UPSUPS (NYSE: UPS) is a global leader in logistics, offering a broad range of solutions including transporting packages and freight; facilitating international trade, and deploying advanced technology to more efficiently manage the world of business. UPS is committed to operating more sustainably – for customers, the environment and the communities we serve around the world. Learn more about our efforts at ups.com/sustainability. Headquartered in Atlanta, UPS serves more than 220 countries and territories worldwide. The company can be found on the web at ups.com and its corporate blog can be found at longitudes.ups.com. To get UPS news direct, follow @UPS_News on Twitter.

Forward-Looking Statements

Except for historical information contained herein, the statements made in this release constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements, including statements regarding the intent, belief or current expectations of UPS and its management regarding the company's strategic directions, prospects and future results, involve certain risks and uncertainties.

Certain factors may cause actual results to differ materially from those contained in the forward-looking statements, including economic and other conditions in the markets in which we operate, governmental regulations (including tax laws and regulations), our competitive environment, changes in the facts or assumptions underlying our health and pension benefit funding obligations, negotiation and ratification of labor contracts, strikes, work stoppages and slowdowns, changes in aviation and motor fuel prices, cyclical and seasonal fluctuations in our operating results, and other risks discussed in the company's Form 10-K and other filings with the Securities and Exchange Commission, which discussions are incorporated herein by reference.

We consider quantitative and qualitative factors in assessing whether to adjust for the impact of items that may be significant or that could affect an understanding of our ongoing financial and business performance or trends. Examples of items for which we may make adjustments include but are not limited to: amounts related to mark-to-market gains or losses (non-cash); settlement of contingencies; gains or losses associated with mergers, acquisitions, divestitures and other structural changes; charges related to restructuring programs; asset impairments (non-cash); amounts related to changes in tax regulations or positions; pension and postretirement related items; and debt modifications.

We believe that these non-GAAP measures provide additional meaningful information to assist users of our financial statements in understanding our financial results, cash flows and assessing our ongoing performance because they exclude items that may not be indicative of, or are unrelated to, our underlying operations and may provide a useful baseline for analyzing trends in our underlying businesses. Management uses these non-GAAP financial measures in making financial, operating and planning decisions. We also use certain of these measures for the determination of incentive compensation award results.

Non-GAAP financial measures should be considered in addition to, and not as an alternative for, our reported results prepared in accordance with GAAP. Our non-GAAP financial information does not represent a comprehensive basis of accounting. Therefore, our non-GAAP financial information may not be comparable to similarly titled measures reported by other companies.

Transformation Strategy Costs

We supplement the presentation of our operating profit, operating margin, pre-tax income, net income and earnings per share with similar non-GAAP measures that exclude the impact of transformation strategy costs. We believe this adjusted information provides important supplemental information that provides useful comparison of year-to-year financial performance without considering the short-term impact of transformation impacts. We evaluate the performance of our businesses on an adjusted basis.

Currency-Neutral Revenue, Revenue per Piece and Operating Profit

We supplement the reporting of our revenue, revenue per piece and operating profit with similar non-GAAP measures that exclude the period-over-period impact of foreign currency exchange rate changes and hedging activities. We believe currency-neutral revenue, revenue per piece and operating profit information allows users of our financial statements to understand growth trends in our products and results. We evaluate the performance of our International Package and Supply Chain and Freight businesses on a currency-neutral basis.

Currency-neutral revenue, revenue per piece and operating profit are calculated by dividing current period reported U.S. dollar revenue, revenue per piece and operating profit by the current period average exchange rates to derive current period local currency revenue, revenue per piece and operating profit. The derived current period local currency revenue, revenue per piece and operating profit are then multiplied by the average foreign exchange rates used to translate the comparable results for each month in the prior year period (including the period over period impact of foreign currency revenue hedging activities). The difference between the current period reported U.S. dollar revenue, revenue per piece and operating profit and the derived current period U.S. dollar revenue, revenue per piece and operating profit is the period over period impact of currency fluctuations.

Free Cash Flow

We supplement the reporting of cash flows from operating activities with free cash flow and free cash flow excluding discretionary pension contributions, non-GAAP liquidity measures. We believe free cash flow is an important indicator of how much cash is generated by regular business operations and we use it as a measure of incremental cash available to invest in our business, meet our debt obligations and return cash to shareowners. We calculate free cash flow as cash flows from operating activities less capital expenditures, proceeds from disposals of property, plant and equipment, and plus or minus the net changes in finance receivables and other investing activities.

(1) Third quarter 2018 operating profit and consolidated income before income taxes exclude the impact of $97 million of transformation strategy costs. These costs are allocated between the U.S. Domestic Package segment ($39 million), International Package segment ($40 million) and Supply Chain & Freight segment ($18 million).

(2) Third quarter 2018 net income and earnings per share amounts exclude the after-tax impact of the adjustments described in (1), which decreased net income by $73 million.

Three Months Ended

September 30

2018

2017

Change

% Change

Revenue (in millions):

U.S. Domestic Package:

Next Day Air

$

1,896

$

1,769

$

127

7.2

%

Deferred

1,066

1,001

65

6.5

%

Ground

7,475

6,881

594

8.6

%

Total U.S. Domestic Package

10,437

9,651

786

8.1

%

International Package:

Domestic

678

673

5

0.7

%

Export

2,654

2,568

86

3.3

%

Cargo and Other

146

135

11

8.1

%

Total International Package

3,478

3,376

102

3.0

%

Supply Chain & Freight:

Forwarding

1,672

1,434

238

16.6

%

Logistics

790

736

54

7.3

%

Freight

867

778

89

11.4

%

Other

200

198

2

1.0

%

Total Supply Chain & Freight

3,529

3,146

383

12.2

%

Consolidated

$

17,444

$

16,173

$

1,271

7.9

%

Consolidated volume (in millions)

1,229

1,197

32

2.7

%

Operating weekdays

63

63

-

0.0

%

Average Daily Package Volume (in thousands):

U.S. Domestic Package:

Next Day Air

1,526

1,471

55

3.7

%

Deferred

1,256

1,240

16

1.3

%

Ground

13,624

13,178

446

3.4

%

Total U.S. Domestic Package

16,406

15,889

517

3.3

%

International Package:

Domestic

1,663

1,706

(43

)

-2.5

%

Export

1,437

1,401

36

2.6

%

Total International Package

3,100

3,107

(7

)

-0.2

%

Consolidated

19,506

18,996

510

2.7

%

Average Revenue Per Piece:

U.S. Domestic Package:

Next Day Air

$

19.72

$

19.09

$

0.63

3.3

%

Deferred

13.47

12.81

0.66

5.2

%

Ground

8.71

8.29

0.42

5.1

%

Total U.S. Domestic Package

10.10

9.64

0.46

4.8

%

International Package:

Domestic

6.47

6.26

0.21

3.4

%

Export

29.32

29.09

0.23

0.8

%

Total International Package

17.06

16.56

0.50

3.0

%

Consolidated

$

11.20

$

10.77

$

0.43

4.0

%

Currency Neutral Revenue Per Piece

(unaudited)

Three Months Ended

Currency Neutral

September 30

2018

2017

% Change

Currency

2018*

% Change

Average Revenue Per Piece:

International Package:

Domestic

$

6.47

$

6.26

3.4

%

$

0.15

$

6.62

5.8

%

Export

29.32

29.09

0.8

%

0.55

29.87

2.7

%

Total International Package

$

17.06

$

16.56

3.0

%

$

0.34

$

17.40

5.1

%

Consolidated

$

11.20

$

10.77

4.0

%

$

0.06

$

11.26

4.5

%

* Amounts adjusted for period over period foreign currency exchange rate and hedging differences

Currency Neutral Revenue

(unaudited)

Three Months Ended

Currency Neutral

September 30

2018

2017

% Change

Currency

2018*

% Change

Revenue (in millions):

U.S. Domestic Package

$

10,437

$

9,651

8.1

%

$

-

$

10,437

8.1

%

International Package

3,478

3,376

3.0

%

67

3,545

5.0

%

Supply Chain & Freight

3,529

3,146

12.2

%

17

3,546

12.7

%

Total revenue

$

17,444

$

16,173

7.9

%

$

84

$

17,528

8.4

%

* Amounts adjusted for period over period foreign currency exchange rate and hedging differences

Currency Neutral Operating Profit

(unaudited)

Three Months Ended

Currency Neutral

September 30

2018*

2017

% Change

Currency

2018**

% Change

As-Adjusted Operating profit (in millions):

U.S. Domestic Package

$

988

$

1,011

-2.3

%

$

-

$

988

-2.3

%

International Package

576

606

-5.0

%

28

604

-0.3

%

Supply Chain & Freight

260

195

33.3

%

4

264

35.4

%

Total operating profit

$

1,824

$

1,812

0.7

%

$

32

$

1,856

2.4

%

* Amounts adjusted for Transformation strategy costs

** Amounts adjusted for Transformation strategy costs and period over period foreign currency exchange rate and hedging differences

UPS Freight Selected Operating Data - Third Quarter

(unaudited)

Three Months Ended

September 30

2018

2017

Change

% Change

LTL revenue (in millions)

$

735

$

673

$

62

9.2

%

LTL revenue per LTL hundredweight

$

25.70

$

24.46

$

1.24

5.1

%

LTL shipments (in thousands)

2,603

2,590

13

0.5

%

LTL shipments per day (in thousands)

41.3

41.1

0.2

0.5

%

LTL gross weight hauled (in millions of pounds)

2,860

2,751

109

4.0

%

LTL weight per shipment (in pounds)

1,098

1,062

36

3.4

%

Operating weekdays

63

63

-

0.0

%

Detail of Other Operating Expenses - Third Quarter

(unaudited)

(in millions)

Three Months Ended

September 30

2018

2017

Change

% Change

Repairs and maintenance

$

437

$

399

$

38

9.5

%

Depreciation and amortization

524

572

(48

)

-8.4

%

Purchased transportation

3,216

2,832

384

13.6

%

Fuel

867

636

231

36.3

%

Other occupancy

321

282

39

13.8

%

Other expenses

1,337

1,203

134

11.1

%

Total other operating expenses

$

6,702

$

5,924

$

778

13.1

%

Detail of Other Pension Income (Expense) - Third Quarter

(unaudited)

(in millions)

Three Months Ended

September 30

2018

2017

Change

% Change

U.S. Domestic Package

$

227

$

165

$

62

37.6

%

International Package

20

20

-

0.0

%

Supply Chain & Freight

37

31

6

19.4

%

Total other pension income (expense)

$

284

$

216

$

68

31.5

%

Earnings Per Share and Share Data - Third Quarter

(unaudited)

Three Months Ended

(amounts in millions, except per share data)

September 30

2018

2017

Numerator:

Net income

$

1,508

$

1,259

Denominator:

Weighted-average shares

860

864

Deferred compensation obligations

1

1

Vested portion of restricted units

4

4

Denominator for basic earnings per share

865

869

Effect of dilutive securities:

Restricted units

5

4

Stock options

-

1

Denominator for diluted earnings per share

870

874

Basic earnings per share

$

1.74

$

1.45

Diluted earnings per share

$

1.73

$

1.44

Detail of shares outstanding as of September 30, 2018:

Class A shares

164

Class B shares

695

Total shares outstanding

859

Nine Months Ended

September 30

2018

2017

Change

% Change

(amounts in millions, except per share data)

Statement of Income Data:

Revenue:

U.S. Domestic Package

$

31,018

$

28,928

$

2,090

7.2

%

International Package

10,613

9,621

992

10.3

%

Supply Chain & Freight

10,382

9,061

1,321

14.6

%

Total revenue

52,013

47,610

4,403

9.2

%

Operating expenses:

Compensation and benefits

27,084

25,032

2,052

8.2

%

Other

19,909

17,112

2,797

16.3

%

Total operating expenses

46,993

42,144

4,849

11.5

%

Operating profit:

U.S. Domestic Package

2,644

3,216

(572

)

-17.8

%

International Package

1,748

1,694

54

3.2

%

Supply Chain & Freight

628

556

72

12.9

%

Total operating profit

5,020

5,466

(446

)

-8.2

%

Other income (expense):

Other pension income (expense)

853

575

278

48.3

%

Investment income and other

60

49

11

22.4

%

Interest expense

(457

)

(324

)

(133

)

41.0

%

Total other income (expense)

456

300

156

52.0

%

Income before income taxes

5,476

5,766

(290

)

-5.0

%

Income tax expense

1,138

1,957

(819

)

-41.8

%

Net income

$

4,338

$

3,809

$

529

13.9

%

Net income as a percentage of revenue

8.3

%

8.0

%

Per share amounts:

Basic earnings per share

$

5.01

$

4.37

$

0.64

14.6

%

Diluted earnings per share

$

4.99

$

4.35

$

0.64

14.7

%

Weighted-average shares outstanding:

Basic

866

872

(6

)

-0.7

%

Diluted

870

876

(6

)

-0.7

%

As adjusted income data:

Operating profit:

U.S. Domestic Package (1)

$

2,879

$

3,216

$

(337

)

-10.5

%

International Package (1)

1,824

1,694

130

7.7

%

Supply Chain & Freight

677

556

121

21.8

%

Total operating profit (1)

5,380

5,466

(86

)

-1.6

%

Income before income taxes (1)

$

5,836

$

5,766

$

70

1.2

%

Net income (2)

$

4,611

$

3,809

$

802

21.1

%

Basic earnings per share (2)

$

5.33

$

4.37

$

0.96

22.0

%

Diluted earnings per share (2)

$

5.30

$

4.35

$

0.95

21.8

%

(1) Third quarter 2018 operating profit and consolidated income before income taxes exclude the impact of $97 million of transformation strategy costs. These costs are allocated between the U.S. Domestic Package segment ($39 million), International Package segment ($40 million) and Supply Chain & Freight segment ($18 million).

Second quarter 2018 operating profit and consolidated income before income taxes exclude the impact of $263 million of transformation strategy costs, which includes voluntary retirement plan transformation strategy costs of $192 million, and other costs of $71 million. These costs are allocated between the U.S. Domestic Package segment ($196 million), International Package segment ($36 million) and Supply Chain & Freight segment ($31 million).

(2) Third quarter 2018 net income and earnings per share amounts exclude the after-tax impact of the adjustments described in (1), which decreased net income by $73 million.

Second quarter 2018 net income and earnings per share amounts exclude the after-tax impact of the adjustments described in (1), which decreased net income by $200 million.